The way in which the WACC method takes the tax shield into account. Introduction: WACC (Weighted Average Cost of Capital) is the rate which a company is expected to pay, on average, to all the security holders in order to finance its assets. An interest tax shield is a deduction in taxable income for a corporation or individual achieved through claiming deduction like depreciation , charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

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Chapter 18.2, Problem 2CC

Summary Introduction

To discuss: The way in which the WACC method takes the tax shield into account.

Introduction:

WACC (Weighted Average Cost of Capital) is the rate which a company is expected to pay, on average, to all the security holders in order to finance its assets.

An interest tax shield is a deduction in taxable income for a corporation or individual achieved through claiming deduction like depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

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